Kerala H.C : This writ appeal impugns a common judgment of the learned single Judge dt. 14th June, 1996, in O.P. Nos. 11187 and 11190 of 1991 [reported as P.M. Manuel & Anr. vs. ITO (1997) 137 CTR (Ker) 625—Ed.].

High Court Of Kerala

Deputy Commissioner Of Income Tax vs. P.M. Antony

B.N. Srikrishna, C.J. & G. Sivarajan, J.

Writ Appeal No. 1461 of 1996

3rd July, 2002

Counsel Appeared :

P.K. Ravindranatha Menon, for the Appellant : P. Balachandran & Smt. Smitha Nair, for the Respondent


B.N. srikrishna, C.J. :

This writ appeal impugns a common judgment of the learned single Judge dt. 14th June, 1996, in O.P. Nos. 11187 and 11190 of 1991 [reported as P.M. Manuel & Anr. vs. ITO (1997) 137 CTR (Ker) 625—Ed.]. The short facts necessary for disposal of this appeal are as under :

The petitioners in both the original petitions are partners in six different firms. The income from the firms is the substantial income of the petitioners. The petitioners filed returns and paid advance tax under the IT Act, 1961 (hereinafter referred to as “the Act”), as per the accounts of the firms for the asst. yrs. 1983-84, 1984-85 and 1985-86. The assessment orders for the said three assessment years were made on 25th March, 1987, 7th March, 1988 and 28th March,1988. The firms were also assessed for the assessment years and the incomes returned by the firms were increased by additions. Consequently, the incomes returned by the petitioners as incomes from the firms also were not accepted and assessed at higher figures. The advance tax paid by the petitioners for the assessment years was less than 75 per cent. of the assessed tax and, therefore, the AO levied interest under s. 215 of the Act for all the three assessment years. The petitioners filed applications for waiver of interest under s. 215(4) of the Act for all the above assessment years. The main ground urged by the petitioners was that they could not anticipate the increase in the income at the time of filing the advance tax as they were guided by the income statements given to them by the firms. Because the incomes of the firms were assessed at larger figures as a result of the assessment proceedings pertaining to the income of the firms, they, as partners of the firms, were assessed to larger incomes which were not within their anticipation or control.

The applications for waiver made by the petitioners were considered by the Dy. CIT, Central Range, Ernakulam. By an order dt. 11th July, 1989, at Ext. P-7, the Dy. CIT partly exercised his discretion by granting waiver of 50 per cent. of the interest. He, however, declined to grant any further relief for full waiver of interest, since the assessee had not estimated the income for advance tax purposes correctly and completely. Not being satisfied with the reduction of interest by 50 per cent. the petitioners filed revision applications under s. 264 of the Act before the CIT. The CIT disposed of the revision applications by his order Ext. P-11 dt. 21st Dec., 1990. After setting out the facts, the CIT took the view that conditions 1 to 4 of r. 40 of the IT Rules under which reduction/waiver of interest was permissible, were not fulfilled. Therefore, the applications for reduction/waiver made by the original petitioners had been considered by the Dy. CIT in exercise of powers under r. 40(5) of the Rules. The CIT was of the view that the reduction of the income of the firms as a result of the appellate orders was not a matter that needed agitation in the revision applications as the assessees would automatically get necessary relief as and when the correct shares income are adopted and the assessments are revised consequent to the appellate orders made in the case of firms. He also declined to place reliance on the Punjab High Court decision cited before him since that decision dealt with penalty under s. 273 and not levy of interest under s. 215 of the Act. He rightly pointed out that interest is levied under s. 215 of the Act to compensate the Revenue for the loss of realisation of the correct amount of advance tax in time. He decided that the Dy. CIT’s direction reducing the interest by 50 per cent. was quite reasonable for all the years and no interference was called for. The revision applications were, therefore, dismissed.

Being aggrieved, the two assessees approached this Court by OP Nos. 11187 and 11190 of 1991. The learned single Judge allowed the original petitions by taking the view that, if the conditions laid down for the exercise of discretion under the statutory provisions are satisfied, the authority has no discretion to refuse to exercise the discretion; if there is omission to exercise the discretion on account of the failure on the part of the authority to genuinely address itself to the matter before it, this Court could issue a mandamus by the exercise of its writ jurisdiction to rehear and determine the matter afresh in accordance with law. He also relied on the observations of the Division Bench of the Gujarat High Court in Patel Engineering Co. Ltd. vs. C.B. Rathi & Anr. (1985) 44 CTR (Guj) 158 : (1985) 151 ITR 542 (Guj), which took the view that the word “justified” used in r. 40(5) is a word of wide import— “Something could be said to be justified if it is proved or shown to be fair or right or according to justice or backed by sufficient reason”. Finally, the learned Judge came to the conclusion that there was mechanical consideration and mechanical rejection of the claims put forward in the revision petitions by the petitioners and that as more than 95 per cent, of the income of the assessees was from the firms and, if as a matter of fact, they bona fide paid the advance tax as per the accounts given to them from the firms, they should not be penalised with interest if it is subsequently found that their income was high. In the result, the learned single Judge maintained the 50 per cent. reduction granted to the assessees by the Dy. CIT, but directed the Dy. CIT to consider afresh as to whether the petitioners were entitled to complete waiver of the entire interest levied under s. 215 of the Act. Being aggrieved, the Revenue is in appeal.

7. Learned counsel for the Revenue, Sri P. K. Ravindranatha Menon, drew our attention to the judgment of a Division Bench of this Court in Kerala State Cashew Development Corporation Ltd. vs. ITO (1990) 186 ITR 521 (Ker). This was a case under s. 139(8) of the IT Act, 1961, r/w r. 117A of the IT Rules, 1962. The proviso to s. 139(8) r/w r. 117A of the IT Rules, 1962, empowers the ITO to reduce or waive the interest where the assessee produces evidence to the satisfaction of the ITO that he was prevented by sufficient cause from furnishing the return within time. The Division Bench held that, on the language of the proviso to s. 139(8), and having regard to the fact that the legislature itself had left it to the rule-making authority to prescribe the conditions and circumstances, it had to be held that what the proviso intends is only to vest a discretion in the ITO to reduce or waive the interest. The Division Bench observed : “What sub-r. (v) of r. 117A stipulates is only a condition precedent, the establishment of which alone will form the foundation for reduction or waiver of interest. It is not as if waiver of interest should follow automatically if sufficient cause enjoined by sub-r. (v) is made out. There is no warrant for this proposition in the language of r. 117A(v). On the other hand, it is clear that the sub-rule gets attracted and the question of exercising the discretion arises only if the circumstances mentioned in it is found to exist. The discretion must be exercised fairly and reasonably.”

Mr. Menon also relied on a decision in Smt. Harbans Kaur vs. CWT (1997) 138 CTR (SC) 211 : (1997) 224 ITR 418 (SC), where the Supreme Court considered a similar question under the WT Act. It was pointed out that the discretion vested in the CIT under s. 18B of the WT Act, 1957, clearly showed that the power conferred on the CIT is to be exercised by him in such manner as he deems just and proper. If the conditions stipulated in the section are satisfied, the CIT has a discretion in the matter. In exercise of that discretion, the CIT can either reduce the amount of the penalty or he may waive the entire penalty. It is for the CIT to decide on the facts of a particular case whether a waiver in entirety or a reduction alone is warranted.

In our view, these judgments make it amply clear that mere fulfilment of the conditions precedent of the statute does not entitle an assessee to full waiver/reduction of the interest. They are merely conditions precedent on which the discretion of the CIT gets activated. The discretion of the CIT is never abridged or taken away under any circumstances. We are, therefore, unable to accept the reasoning of the learned single Judge that the petitioners- assessees automatically had a right for waiver of the interest under s. 215(4) r/w r. 40(5). As a matter of fact, r. 40(5) is a residuary provision and intended to enlarge the discretion of the Dy. CIT to reduce or waive the interest even in circumstances which are not enumerated in other sub-rules of r. 40. On a reading of the judgment of the Dy. CIT, which was challenged in the original petitions, and the approach of the CIT in disposing of the revision applications, we are not satisfied that the discretion vested in the Revenue authorities has been improperly exercised or that there is total failure of application of mind. May be, in their discretion, the authorities took the view that not more than 50 per cent, of the waiver of interest was justified. That, per se, is not a matter which would call for interference by the High Court in exercise of its writ jurisdiction.

Mr. Menon relied on the judgment of the Supreme Court in Shenoy & Co. vs. CTO (1985) 2 SCC 512, to contend that though originally two petitions were disposed of by a common judgment of the learned single Judge, the ‘Revenue has filed only one appeal as the judgment delivered in one appeal would be equally applicable to the other proceedings also. Finally, it appears to us that there is some self-contradiction in the judgment under appeal. If the orders of the Dy. CIT and the CIT were bad because of non-application of mind, then even the 50 per cent. waiver granted would be bad and the result would be to set aside the order in its entirety and direct the matter to be reconsidered afresh by the Departmental authorities. We asked learned counsel for the respondent-assessee whether she wanted this course to be adopted. Very wisely, she declined. Hence, we do not think, in the circumstances, that interference with the orders of the Departmental authorities was justified.

We, therefore, allow the appeal, set aside the judgment of the learned single Judge under appeal and dismiss the original petition. We make it clear that whatever is decided in this appeal would apply equally to the cases of both the petitioners in OP Nos. 11187 and 11190 of 1991.

[Citation : 257 ITR 616]

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